Monday, April 28, 2014

"From the right"

I liked a lot of things about the book. I learned a lot from it, and it affected how I think about capital and inequality. I respect Piketty as an economist and realize that he is a brilliant, capable scholar who knows economics better than I do. His book is an incredible accomplishment and a major contribution to the economics and policy world. I focused my review on criticisms because, at the time I wrote it (in March), most of the reviews I'd seen were very positive. I figured people would get the positive stuff elsewhere; I did not anticipate the 10 million reviews that were to come, including plenty of critical ones.

In any case, my review boiled down to three critiques: (1) too much exogeneity, from interest rates to output; (2) no serious discussion of the optimal tax literature; and (3) not enough attention to context in terms of global inequality and actual poverty levels in the rich countries studied. It is likely that Piketty has considered these issues in other publications; I thought they deserved attention in the book. I don't consider my review to have been a "slam" on Piketty or his book; it's just a critique.

I don't think points (1)-(3) are terribly political. I think they are critiques that are likely to come up in any econ department seminar. I confess that I like mainstream economics and I like thinking with formal models. I have found that framework useful; I would be more convinced by the book if it were less dismissive of that framework. I don't have strong opinions about Piketty's policy recommendations; in fact, I lack a strong opinion about a lot of the issues that typically define American politics, and I suspect that my views on the few items I do care about don't fall consistently into one of the camps.

Wonks and others: stop trying to cram every economic argument into standard Left/Right boxes. Maybe it attracts more readers for your various projects, but it doesn't advance the discussion.

Those sound like empirical questions. I can think of counterexamples--why did the Sherman Act pass despite the Robber Barons? They didn't like it, but they found themselves unable to stop it. But I don't know. Political economy concerns do seem to comprise the most persuasive argument for making policies to reduce inequality.

I think your classification of fence-sitters as rightwing is very, very problematic. "If you're not with us, you're against us."

I haven't read the book, but what I understand is that Piketty addresses the empirical questions. Under capitalism, wealth to income ratios increased - despite reforms like the Sherman act - until the two World Wars and Great Depression. Inflation and taxes for the war debts reduced the ratio. That's what did in the Robber Barons and gave us the post-war years of growth. A few decades after these crises, capitalism is reverting to mean with a high wealth to income ratio. This has implications for inequality and democracy.

Maybe you are right about fence-sitters. There are all varieties of right and left and "centrist." Left and right are just an easy simplifying shorthand and way to remember and catagorize people and their ideas."

When I read

"This is the great failure of the inequality alarmists generally: a myopia centered around rich countries that have seen massive growth in purchasing power for everyone."

I classify it as rightwing. Because for the last 40 years, labor hasn't shared in productivity gains except for a brief period in the late 1990s. Wages have stagnated and inequality have increased. The question of whether those on the left are being alarmist about inequality is an empirical question.

Using Left and Right to put people in boxes is stupid, unless we're watching cable news. I don't fit in a Right box, and my review is mostly standard methodological critiques, so trying to cram me into a box that way reveals more about you than it does about me. I misused one word--alarmist--and that has led you people down the rabbit hole.

Piketty doesn't address the empirical question of what bad political consequences follow from inequality. You made a claim: "History tells us that when inequality is bad, democracy suffers." That's not a very precise claim, and it's not a claim for which Piketty provides evidence. How does democracy suffer? I would think that you mean that the wealthy capture policy and bend it in their favor. That's a reasonable presumption, but as I noted there are counterexamples. You totally missed my point about the Robber Barons: they controlled enormous wealth and yet were unable to pervert democracy in their favor, at least in the instance of the Sherman Act.

Just because Piketty has a lot of charts does not mean that every assertion made by him or his fans is empirically demonstrated by those charts.

In other words, you're making a circular claim. Wealth concentration makes democracy suffer. How is democracy suffering? Well, because there is wealth concentration. Your argument is basically, "wealth concentration causes wealth concentration." It's a tautology, until you get more serious about explaining how exactly democracy suffers.

Left vs Right is ultimately a debate about the relative merits of equalizing vs stabilizing property rights. It's fair to see your post as pulling towards the latter position -- not that there's anything wrong with that!

"This is the great failure of the inequality alarmists generally: a myopia centered around rich countries that have seen massive growth in purchasing power for everyone. For within-country inequality to become a public policy priority, those concerned about it need to make a much stronger case. This isn't just about whether society is totally meritocratic--obviously it's not, as Piketty argues in multiple places. The problem is that Piketty has not performed an analysis of optimal inequality, choosing to rely instead on a lot of straw man arguments and vague references to 'democracy.'"

I don't think it is difficult or uncharitable to read this as right leaning. Perhaps in econ land it doesn't seem so. But in the broader intellectual terrain calling someone an inequality alarmist is hardly even handed.

By "inequality alarmist" I simply mean those raising alarms about inequality in the rich countries. I don't mean it as a pejorative. Apparently it was poorly worded.

Why is it right-leaning to mention the fact that the poorest citizens of rich countries are economically better off than most of the world? That's a fact, not a political talking point. I care about poverty. The most significant poverty lies outside the developed countries that are Piketty's focus.

By labeling me as right-leaning for suggesting that global poverty is a far more significant issue than the wealth gap within rich countries, are you suggesting that the left doesn't care about poverty? I think a lot of left-leaners would disagree with you. This is an honest debate about where we should focus our attention. My prior is that global poverty deserves more attention than the dynamics of top 20% and top 1%. Piketty has not made a serious argument for why I should change my mind about that. This has nothing to do with left and right, unless other people make it that way, as you have.

"Why is it right-leaning to mention the fact that the poorest citizens of rich countries are economically better off than most of the world?"

It's right leaning to support policies which take from the poorest citizens of rich countries and give to the poorest citizens of the world and ask nothing of the rich citizens of rich countries who get richer.

Dean Baker has an interesting criticsm of K21. "Real wages in China tripled in the decade from 2002-2012... Manufacturers can look for other low-wage havens, but there are no other Chinas out there. The loss of extreme low wage havens is likely to enhance the bargaining power of large segments of the workforce."

So in a way Baker agrees with you. I don't know how Piketty addresses this in his book. My guess is that he would say as the global economy integrates more and more, the poor in rich and poor countries move towards each other in living standards while the rich in both rich and poor countries get wealthier as r > g. This will have implications for democracy.

Yglesias probably took "alarmist" to mean "a person who tends to raise alarms, especially without sufficient reason, as by exaggerating dangers or prophesying calamities." That's the main definition if you look it up. And so he classified you as right-leaning to inform his readers what they would get if they clicked the link.

Fine. I shouldn't have used "alarmist." Is that the only thing anyone noticed in the review? Does my use of the word "alarmist' make it so my critiques are all politically motivated? I think Yglesias is smarter than that.

I think I have an theory that better fits the data than those who came here to make up post hoc justifications that hinge on your using one word in a way that can be taken as a pejorative.

Yglesias sees the world as black and white, good vs evil, progressive (left) vs reactionary (right). There is no room for in-between, and not even a way to conceptualize orthagonal axes. He actually sees himself as relatively centrist; disagreements come from the left or right only. And the only disagreements with this book from the left in the US come from circles that despise capitalism, so you cannot be from the left.

To quote the petulant Darth Vader in ep 3, "If you are not with me, then you are my enemy".

Don't let it get you down, the single axis conceptualization of American politics is so dominant that trying to explain that you don't belong on it will usually only bring suspicion from partisans who think you must be some kind of undercover agent who is working for one of those sides.

I found a couple of interviews with Michael Hudson interesting, the latest two in http://michael-hudson.com/ and started browsing his book 'Super Imperialism' (1972 and 2003). Early in the book, in passing, he says that there was strong anglophobia among the Republicans and opposition to British free trade doctrines in the nineteenth century. He goes on to describe on pages 16-17, Simon Patten and others who viewed American society in contrast to European society wracked by class conflict, pauper labor and a struggle for foreign markets based on reducing wage levels... they seemed to be seeking a society different from Europe's. Hudson goes on to suggest this kind of background for the isolationist attitude during the early days of first world war. I wonder whether this kind of background had some role in the Sherman act.Secondly, when talking of poverty levels in USA, some say that they are better of than many in poorer countries. This is true but I think that how many go hungry, increasing numbers in soup kitchens (which I noticed on the last trip in Long Island area in 2011) should be noted.

Thanks for the comment. With regards to the Sherman Act point, the broader point is that there is an empirical research literature on the topic of money and politics, and those who are relying on the money/politics issue for the defense of counter-inequality policy should be referencing that literature and the historical record more generally. They will be more persuasive if they use evidence.

I definitely realize that there are pockets of poverty and hunger in America. They are far less quantitatively significant than the magnitude of poverty outside the US, but they deserve targeted policy attention nonetheless (obviously). It's not obvious that the broader policy ideas people reference for treating inequality are the best way to approach that issue. Is a global wealth tax the sharpest instrument we have for dealing with child hunger and homelessness in the US? I sorta doubt it, but I could be wrong.